Ministry seeks increase in OMCs profit margins

ISLAMABAD: The Ministry of Petroleum and Natural Resources has sought increase in the profit margins for oil marketing companies (OMCs) and their dealers on sale of petrol and diesel.

According to a summary moved to the Economic Coordination Committee (ECC) of the Cabinet, the ministry requested an increase of about 2.6 per cent on both diesel and petrol separately for OMCs and dealers.

It said the OMCs’ margins were last increased by 49 paise and 12 paise per litre on high-speed diesel (HSD) and petrol, respectively, effective Nov 1, 2014. As such, OMCs are charging Rs2.35 per litre on each petrol and diesel since then.

Many within the government believe they should instead be reduced

At the same time, dealers’ margin was also increased by 30 paise per litre each on petrol and HSD. Since then, the dealers are charging Rs3.08 and Rs2.60 per litre on petrol and HSD, respectively.

The ministry said the ECC decided in October 2014 to link margins with consumer price index (CPI) in the future after an interval of one year. Under that decision, the margins should have been revised in November 2015 as per CPI, it said.

The OMCs are now seeking “some additional margin over the rate of CPI”. They demand 10 paise per litre increase in margins on both products. On top of that, they have also requested to allow some financial element for fresh infrastructure investments in their margins.

The petroleum ministry said that oil dealers have also demanded increasing margins to Rs7.12 per litre for petrol and Rs7.58 per litre on diesel — up 131pc and 191pc, respectively. They have argued that given very low turnover because of historically low prices, the margins should be set at 10pc of selling price.

A senior petroleum ministry official said the ministry did not accept exorbitant increase demanded by the dealers and margins.

“The increase (in margins) demanded by dealers is illogical, exorbitant and unacceptable,” he said, adding that the ministry also did not support the quantum of increase sought by OMCs.

The petroleum ministry in its summary, however, proposed that based on ECC decision of October 2014 the margins for both — dealers and OMCs — should be increased on the basis of CPI. And given CPI of 2.7pc between November 2014 and 2015, the margin for OMCs should be increased by six paise per litre each on petrol and HSD to Rs2.41 per litre.

Likewise, the ministry has proposed an increase of eight paise per litre in dealers’ margin to Rs3.16 on petrol and seven paisa per litre increase in HSD to Rs2.67 per litre.

An official, however, said the government should look into the entire oil supply chain in a holistic manner. Given the fact that oil prices were going down, many within the government believed the margins should also decline proportionately, he said.

Such people have argued that while oil prices have tumbled from over $110 a barrel to less than $40, the oil companies had not reduced the prices of lubricants at all, which was an injustice with motorists.

The petroleum ministry, on the other hand, believed that the low oil price scenario was the best time to improve private sector’s profitability for investments in quality improvement and capacity up-gradation.

The sources said the Oil and Gas Regulatory Authority (Ogra) also opposed the increase in margins, saying these rates were set in absolute terms but at about 3-4pc of import parity price. These margins in percentage terms have automatically gone beyond 8pc due to fall in international prices.

Ogra is reported to have said that there was no justification for increase in margins in view of reduced international oil prices and resultant import parity price, lower electricity costs and inflation rates, and argued that some companies were offering discounts on oil products to gain the market share which suggested the existing rates were reasonable.